Tech investors were eagerly awaiting the return of IPOs, and last week, two notable companies filed for stock market debuts. Instacart, a grocery delivery startup, and Klaviyo, a data and marketing automation company, both made their filings. The excitement around these IPOs reflects the current sentiment in Silicon Valley and could set the tone for other companies to go public in the coming months. The performance of these initial public offerings will be closely watched by other management teams, who may be inspired to follow suit. However, the valuations seen in the tech IPO market in recent years are unlikely to be repeated, and companies will need to manage their expectations accordingly.
Instacart, which has been backed by top venture firms such as Sequoia and Andreessen Horowitz, has seen a significant decrease in its valuation ahead of its IPO. The company, which was valued at $39 billion in early 2021, has lowered that number to $24 billion due to various market factors. On the other hand, Klaviyo, which helps clients with targeted marketing, has not experienced a similar valuation reduction and has been able to maintain its value. Although Klaviyo has a lesser-known brand, its revenue growth is outpacing Instacart’s, and its valuation could be around $7 billion.
The timing of these IPO filings is not surprising, as companies typically aim to be first in the back-to-school season. With Labor Day marking the end of summer holidays, management teams and bankers can start their roadshow in early September, with the IPO taking place later in the month. These filings will provide valuable insights for startup investors as they plan for the remainder of 2023 and beyond.
In addition to Instacart and Klaviyo, Arm, a chip designer owned by SoftBank, has also filed for an IPO. However, Arm’s situation is somewhat different, as it is a larger company and was previously a public company. Arm’s IPO aims to provide liquidity for SoftBank after several unsuccessful investments. To achieve a valuation of $32 billion, Arm will need a higher multiple compared to traditional venture-backed companies. Nvidia, a dominant player in the semiconductor market, has a price-to-earnings ratio of 114, indicating the high expectations from investors.
The technology sector may be showing signs of a slowdown, as the Nasdaq has experienced a slight decline in August. However, companies should not solely focus on market conditions when deciding to go public. The market will ultimately determine a company’s value, and if it performs well, there will always be opportunities for higher valuations in the future. It is important for companies to prove their worth and demonstrate strong performance to investors.
In conclusion, the IPO filings of Instacart, Klaviyo, and Arm are significant events in the tech industry. These companies will serve as indicators for other companies considering going public in the near future. However, expectations for valuation multiples should be adjusted, and companies must rely on their market performance to determine their value.
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